How do companies actually work?
The Operating System for Evolutionary Organisations - Part 2/10
Foto von Bob Brewer auf Unsplash
How companies work
In this article, we will explore how work actually gets done and how companies are working. It’s the 2nd article of a series of 10 where I will dive into why traditional organizations are doomed to fail and how a new breed of evolutionary organizations offer a better way forward. These innovative companies prioritize people, continuous development, and embrace complexity. Thus fostering happiness and achieving lasting success. On top of that, I sprinkled in a little bit of science and distilled a framework of 3 universal principles and 8 essential components, with which any CEO or founder can transform their organization into a workplace that thrives.
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So how does stuff get done? Here is a simple answer: stuff gets done in tribes. Each tribe is defined by its culture, the set of beliefs, routines, and actions the tribe practices. It’s essentially what they do and the way they work. Some tribes, with respect to their culture, are more effective than others, and this helps them succeed. Do you want to leave it to chance, or would you rather shape your culture to be effective and support your mission? To shape the culture the leader has to act as a role model of the culture and set standards with his actions.
But what is a tribe? In the book “Tribal Leadership: Leveraging Natural Groups to Build a Thriving Organization” Dave Logan, John King, and Halee Fischer-Wright describe tribes as groups of 20 to 150 people united by culture. So how can you know if someone is a part of your tribe? Perhaps, this is someone you see on the street who you’d want to say “hello” to. Your tribe members' numbers are likely saved in your phone. And in the business world, these tribes are incredibly important.
A shared culture is what makes some tribes more effective than others. According to Professor Robert Kegan and Lisa Lahey, culture is a set of beliefs, routines, and practices necessary for getting work done. Ultimately, culture defines a unique language and shared assumptions about how the world works, how problems get solved, and what is important.
Ben Horowitz, a famous venture capitalist, says in his book “What You Do Is Who You Are” that culture also is the way people act. A company culture is composed of how the decisions are made when you, as a founder, are not there. So, culture is a set of assumptions employees use to resolve the problems they face every day and how they behave when no one is looking. The things that are being cherished in your company are your culture. When you start fresh at a company as an employee, the actions that are being valued in that company are what define the culture. You can’t just write down a culture. It is how you live it that defines it.
While some tribes demand excellence, others are content with getting the minimum done. The difference is in how leaders develop their tribes. So as a leader, would you want to leave your culture to chance? Or rather shape it the way you want it and be effective for your company? Horowitz says that “if you don’t methodically set your culture, then two-thirds of it will end up being accidental, and the rest will be a mistake.”
A lot of business books don’t look at the idea of organizational culture from a broader sociological perspective. What’s more, a lot of them attempt to dissect and analyze the cultures of companies that already succeeded. However, such an approach confuses cause and effect because so many extremely successful companies have weak or even toxic cultures. A desirable product can thrive even in a miserable environment.
That’s the concept of survivorship bias — the logical error of concentrating on companies that succeeded and falsely concluding that it was their culture that made them great — that affects the evaluation of company success. Instead, Horowitz suggests looking at “cultural techniques that leaders used as they tried to strengthen their culture in specific ways, and show how those efforts played out”.
Logan et al. outline 5 different stages of tribes:
Stage One
Very few professionals operate in stage one (fewer than 2%)
If stage one was a t-shirt, it would read “life sucks”
People in this stage are despairingly hostile and they band together to get ahead in a violent and unfair world
This is the typical culture in prisons or gangs
Stage Two
25% of the workplace tribes see stage two as their dominant culture.
“My life sucks” is the adopted attitude
People are passively antagonistic, have no passion, laughter is quiet, sarcastic, and resigned. They expect failure
There is little to no innovation and almost no sense of urgency, and people almost never hold one another accountable for anything
Stage Three
The dominant culture seen in most workplaces (49%)
“I’m great, and you’re not” is their slogan
Doctors, professors, attorneys and salespeople are prone to operate at this level
Knowledge is power, so people hoard information
They complain about not having enough competent support
Common in companies where success is measured based on an individual basis
Stage Four
There is a big gap between stage three and stage four culture
Stage four is characterized by the slogan “we are great, and they are not” and represents 22% of the workforce
People feel free to fully express themselves. Everyone seems happy, inspired, and genuine
The bigger the foe, the more powerful the tribe at stage four
Stage Five
Slogan “life is great”
Less than 2% of workforces operate at this level
Their language revolves around infinite potential and how the group is going to make history – not to beat a competitor, but because doing so will make a global impact
This stage is pure leadership, vision, and inspiration
Innovative breakthroughs happen at this level
The most effective tribes operate at stage five. Therefore, you want your company to operate at this stage as much as possible. Nevertheless, different companies need and will have different cultures at that stage. So, how can you get to stage five?
One of the key elements of getting to stage five is a noble cause, the direction in which the tribe is heading. It explains why the company exists. Essentially, it provides the purpose for the company. The second is a set of shared values and/or principles. Core values are the fuel of a tribe. What are the beliefs and principles the team abides by? The tribe uses them as a compass to guide their decisions and behaviors. Values are what the team “stands for” and a noble cause is what they “shoot for.” These concepts provide employees with a common way to understand the world and a shared set of beliefs. Values and noble causes make people want to wake up in the morning and produce exceptional results, as well as help them stay highly motivated and happy. The important part is that these values are not just defined and hung on a wall but actually lived, the actions and decisions being taken. Defining them helps you get clarity but that’s only the start. The tribe leader is the role model for living these values.
Now, we have learned that some tribes are more effective than others and that you as a leader can shape your culture with your actions and decisions. How can you create an effective culture and effectively create the culture you want? Start by identifying the culture you want in your company and start figuring out the way to get there. What are the behaviours that drive the right change? What kind of culture attracts the right people for your endeavour? And then start behaving accordingly and consistently across the organisation. Valuing the right behaviours and decisions and calling out bad behaviours. Exaggerating wished behaviours or even creating shocking or extreme rules. And also making decisions that demonstrate your priorities with you leading by example. Talk about it, but even more important: walk the talk. Let’s see how some leaders have shaped and set parts of their culture.
First, let’s take a look at the example of Shaka Senghor who ran a powerful gang in the Michigan prison system in the 1990s-2000s. Senghor knew that the lives of his supporters depended on his gang culture. So, it was very important to create the right type of culture. Horrowitz reflects on a conversation with Shaka Senghor about how to design and shape these nearly invisible behaviours:
Shaka Senghar: “It’s complex. Say someone steals one of your guys’ toothbrushes, what do you do?”
Horowitz: “That seems innocent enough. Maybe the thief just wanted clean teeth?”
Shaka Senghar: “A guy doesn’t take that risk for clean teeth. It’s a diagnostic. If we don’t respond, then he knows he can rob your guy of something larger or rape him or kill him and take over his business. So if I do nothing, I put all our members at risk. Killing the guy would be a big deterrent — but it would also create a super violent culture.” He spread his hands. “As I said, it’s complex”.
Second, Horrowitz talks about the only successful slave revolution in Haiti led by Toussaint Louverture. He even defeated Spain, Britain and France. How was he able to do that? He knew that his decisions would be critical as they would shape the culture.
Louverture set his culture by making one of the most counterintuitive decisions of the revolution. Once the rebels won control of the island, many of Louverture’s soldiers wanted revenge on the plantation owners. It would have been the course of least resistance for Louverture to order the owners shot out of hand. They would certainly have done the same to him. But he abhorred the spirit of revenge, believing it would destroy rather than elevate the culture.
With these decisions, Louverture established what a thousand speeches could not have: that the revolution wasn’t about revenge and that the economic wellbeing of the colony was its highest priority. It was all very well for him to say “no reprisals,” but it was what he did that set the culture.
Ray Dalio of Bridgewater, one of the biggest hedge funds in the world, exemplifies his organisation’s value, radical transparency by recording everything. All meetings, calls and conversations are recorded. By that, he eradicates the inefficient talk of people going behind each other's back. If you have to say something about someone you should feel comfortable saying it to their face. It also helps to go back to the situation, to look at it and recall what happened in detail. This helps everyone to get a more objective picture of their behaviour and improve. The truth is sometimes hard but at least you know where you stand.
It was the summer of 1995, back when Jeff Bezos could count his Amazon employees on one hand, and those few employees needed desks. Bezos’ friend and employee number five, Nico Lovejoy, says Bezos himself found a scrappy, cost-effective solution right outside their doors. “We happened to be across the street from a Home Depot,” said Lovejoy. “He looked at desks for sale and looked at doors for sale, and the doors were a lot cheaper, so he decided to buy a door and put some legs on it.” With that, the Amazon “door desk” was born. What neither of them knew at the time was that the scrappy, do-it-yourself desk would turn into one of Amazon’s most distinctive bits of culture. More than 20 years later, thousands of Amazon employees worldwide still work each day on modern versions of those original door desks. As Amazon grew, a decision was made to keep using door desks as a symbol of one of the company’s core values — frugality.
Another example comes from my personal experience as an entrepreneur. At one of my previous companies, 99chairs, I was raising a financing round. However, as it sometimes happens, it was taking longer than I expected. We were running out of money. In most companies, this information is kept behind closed doors. We decided to go a different route and addressed the issues openly in front of the whole team and discussed our options. In the end, the team agreed that they would be willing to continue working for a few weeks without their paycheck, which allowed us to close the round instead of shutting down the company. Because I was honest with my team, they were able to trust me not only in that situation, but also in the future. I showed them that I have their backs.
Horowitz also references a saying in the military, which states that “if you see something below standard and do nothing, then you’ve set a new standard”. This easily applies to the idea of culture: if you see something that appears to be outside of culture and do nothing about it, then you’ve changed the culture and lowered its standard. At the same time, as the business environment continues to shift continuously, the culture needs to always adapt and evolve. Therefore, it works both ways.
He suggests that culture is ultimately stronger than product: “At first, of course, you need a product to sell, but then, in the long term, it’s all about the culture. If startups outsource their engineering, they almost always fail. Why? It turns out that it’s easy to build an app or a website that meets the specification of some initial idea, but far more difficult to build something that will scale, evolve and handle edge cases gracefully. A great engineer will only invest the time and effort to do all those things, to build a product that will grow with the company, if they have a share in the company — literally, as well as figuratively.”
Culture isn’t a magical thing that helps companies succeed by following a set of rules. A culture is a system of behaviours and values that unites people in tribes and helps them make the most of their potential. It’s not about perfection, but about aiming to be the best version of themselves. A great culture doesn’t mean a great company. Even with great culture, companies can fail if their product isn’t good enough. A culture for a company is the same as a proper diet and training for a professional athlete. If the athlete is talented, he may continue to succeed without either for a while, but discipline is what will take him to the next level.
But why should we bother to build a great culture if it doesn’t ensure success? “In the end, the people who work for you won’t remember the press releases or the awards. They’ll lose track of the quarterly ups and downs. They may even grow hazy about the products. But they will never forget how it felt to work there, or the kind of people they became as a result. The company’s character and ethos will be the one thing they carry with them into the future. It will be the glue that holds them together when things go wrong. It will be their guide to the tiny, daily decisions they make that add up to a sense of genuine purpose.”, Horowitz says.
The culture we created at 99chairs reflects that well. Even though we had to close down the company, the bond between the people remained and many great friendships, endeavours, careers and companies were launched from that connection.
In conclusion, understanding how companies work reveals that they function as tribes, each defined by a unique culture. Culture is the set of beliefs, routines, and practices that drive a tribe's behaviour and effectiveness. The most successful companies aim for Stage Five tribal cultures, characterised by visionary leadership and innovation. To reach this pinnacle, leaders must articulate a noble cause and live by shared values, which serve as the guiding principles for decision-making and behaviour. Leaders play a critical role in shaping this culture. Their actions show what is valued and wished. Culture doesn't guarantee success but it helps a company to make most of their potential by paving the way for excellence and enduring unity among the team.
In the next article I will cover “the future of work ” before diving into the operating system of the future. If you are interested, please subscribe. I will then notify you when I release the 3rd article (in around 2 weeks) and send you the full white paper about the operating system for evolutionary organizations when it’s done.